The fiscal deficit estimate for the year 2017-18 is Rs 5, 46,532 crore and if the shortfall is taken into account, the deficit estimate for the year will stand increased to Rs 5, 64, 312 crore, the agency added.ETTelecom | June 20, 2017, 18:21 IST

NEW DELHI: The government’s fiscal deficit estimate for 2017-18 is set to rise to 3.35% from present 3.24% of the GDP, impacted by the shortfall in non-tax revenue target by Rs 17,780 crore from telecom services, ratings agency Care Ratings said Tuesday.

Given the severe pressure on account of intense competition, fall in sales and profits, increase in debt and hugely priced spectrum acquisition, the agency has put the focus on the decision that of the inter-ministerial group – looking into the financial stress of the telecom sector – which it said will be of ‘utmost importance.’

“If the telecom industry falls short of the non-tax revenue target by Rs.17, 780 crore, then the fiscal deficit estimate for India for the year 2017-18 will stand increased to 3.35% from the estimate of 3.24%,” the agency said in a note to clients.

The fiscal deficit estimate for the year 2017-18 is Rs 5, 46,532 crore and if the shortfall is taken into account, the deficit estimate for the year will stand increased to Rs 5, 64, 312 crore, the agency added.

The agency’s views come a day after ET reported that the telecom department (DoT) asked the finance ministry to cut the non-tax revenue target from telecom services by over 37% to Rs 29, 524 crore for the current financial year, on account of financial stress in the sector caused by intense competition and debts that the banking sector considers to be around Rs 7.29 lakh crore.

“Witnessing the current trend of falling revenues that impacted the collections of license fee and spectrum usage charges, the telecom ministry is of the view that this trend will continue in the near term as well,” Care Ratings said in the note.

The department expects license fee estimates for this fiscal to plunge by nearly half to Rs 9,255 crore and spectrum usage charge (SUC) to be lower by more than 35% to Rs 17,056 crore. It also expects zero revenue from spectrum sale even if there is an auction this fiscal, as service providers may not bid for airwaves given their highly leveraged balance sheets, member finance at DoT said in a letter to the department of economic affairs dated June 1.

Gross revenue of the sector fell by Rs 26,000 crore, or 11% on year, in the last fiscal ended March 31 to Rs 2.1 lakh crore. “In view of the severe financial stress in the sector and rapidly declining revenues of all major telecom service providers, revenue targets for DoT for budget estimates 2017-18 will actually require a downward revision,” Anuradha Mitra said in the letter.

As per the current norms, the telecom companies pay 8% of the adjusted gross revenues as license fee and 3-6% of the adjusted gross revenues as spectrum usage charges. However, of late the industry has been asking the government to reduce these charges as the industry is facing severe competition and is under financial pressure.

Care Ratings pointed to the tariff war started by Reliance Jio giving free voice and data offers, which lead to revenue decline of 1.1% in December 2016 quarter and further decline of 10.2% in the March 2017 quarter.

“It was not just the revenues but also the profit margins that were hit on a y-o-y basis in the December 2016 quarter and the March 2017 quarter due to predatory pricing. The operating margin contracted in each of these quarters and the net margin also saw deterioration during these quarters,” the agency said.

The quarterly operating margin dropped to 27.8% in the March 2017 quarter, 0.6 percentage points on-quarter, while net margin dropped to -64.5% from 0.3%, in the same period. The average sales growth rate and net profit margin of the industry remained weak in 2016-17 due to ‘new entrant that forced the incumbent telecom companies to cut their rates for data and other services,’ Care Ratings added.

The telecom operators as well as banks met the IMG over last week to assess stress in the telecom industry and are seeking support from the government for its betterment. Carriers have asked for government support by cutting licence fees, SUC, scrapping the Universal Service Obligation Fund (USOF) and deferring payments for spectrum over 20 years, among others.

Separately, RCom initiated contempt proceedings in the apex court against the Department of Telecommunications, blaming it for delaying a spectrum sale that would have enabled dues to be paid to Ericsson and lenders.